Financial education, despite its importance, is often ignored by most individuals. This is usually because there is little reliable personal finance information to be found online. There are only a few platforms that offer courses that claim to teach people how to have a healthy financial life, however, these are usually locked behind prohibitively expensive paywalls. Some online platforms even try to sell these courses as get-rich-quick schemes. This having been said, the basics of personal finance, at least on a functional level, are not too complicated. There are only a handful of financial principles and methods that should be used at all times, to ensure that individuals can make the most out of their hard-earned incomes.
The 5 Steps Needed to Have a Healthy Financial Life
· Build up Your Credit Score
Building up an individual’s credit score is the first step on this list simply because it is also the most important. It is often very difficult, if not impossible to increase one’s credit score overnight, and ignoring its status can have serious consequences on the terms and conditions that lenders have to offer. Keep in mind that a credit rating is calculated by looking at the entirety of an individual’s financial records. This includes all the decisions that a borrower makes, from whether or not he makes payments on time to how much he uses his credit cards and how often.
An easy way to slowly build up your credit score is by taking out personal loans when you need them and repaying them on time, with no exceptions. It is also possible to increase one’s credit score by getting a credit card and using is every couple of months. These habits will show banks and other private lenders that you can be trusted with credit and that you can repay the borrowed money without postponing or skipping payments.
· Create a Well-structured, Functional Budget and Stick to It at All Times
A lot of people try to set up monthly budgets in order to better manage their income and expenses, however, most do not design them to also be functional. In other words, a monthly budget should be restrictive enough to allow an individual to save money, but also flexible enough to take into account some unexpected expenses. There are several personal budget models online that are both easy to implement as well as to tailor to your particular financial situation. However, keep in mind that creating a budget is not enough. It is important to also stick to it no matter what. This means that discipline is required to never go over the set limits. A good way to do this is to open two accounts. Keep the budget money into one of them and everything else in the other.
· Know When It Is Okay to Make Expensive Purchases
As a rule of thumb, you should only make expensive purchases when you have at least twice the value of the product in your pocket. This will enable you to buy a phone or a laptop without going into parts of the budget that should have been spent on other important things, such as rent or utility bills.
· Be Smart When Saving Money
Opening a savings account only takes a few minutes and can constitute a great incentive to save money. Furthermore, make a habit out of first depositing money into the savings account and then calculating how much you have for creature comforts.
· Look for Secondary Sources of Income
We live in the age of the internet when it is extremely easy to find a secondary source of income, preferably a passive one. Consider starting a blog or a YouTube channel. Generally speaking, anything that can generate money without you having to actively do anything.
It is not required to take all of these 5 steps to having a financial life, however, each of them has a specific purpose and is an important part of the whole. Try going through them and see what can be integrated into your day-to-day life.